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Credit rating agency ICRA in its latest report has said that the operating profit margin (OPM) of North India (NI)-based bulk tea players is expected to be significantly impacted in FY2024 due to the double whammy of increase in cost of production, following the wage rate hikes in West Bengal and Assam and the drop in realisation due to the low export demand and a sluggish rural consumption. Thus, the rating agency has revised the sector outlook to Negative from Stable. 

According to the report, the all-India auction prices of orthodox (ODX) tea in 10M CY23 witnessed a significant decline of Rs 51/ kg (21%) on a YoY basis. The same was primarily driven by a sharp drop in the North India ODX tea prices by Rs 70/ kg during 10M CY23 on a YoY basis. The price fall witnessed in South India (SI) ODX tea was, however, limited to Rs 7/ kg (5%) during the same period. The slump in ODX tea realisation was due to lower export demand, primarily from Iran.

Similarly, the report said the all-India cumulative auction average of crush-tear-curl (CTC) tea also witnessed a decline during 10M CY23, but to a lower extent of Rs. 6/ kg (3%). This was entirely due to the decline in NI CTC price by Rs. 10/ kg (5%) as the SI CTC price registered an increase of Rs. 6/ kg during 10M CY23 on a YoY basis. Sluggish rural demand, along with headwinds in export markets due to oversupply of Kenyan teas, India’s main competitor as far as CTC teas are concerned, have contributed to the decline.